Analysts skeptical about economic growth

The IMF lowered 2008 growth estimates for all Eastern Europe EU members, except Lithuania, due to their vulnerability to the financial markets crisis.

However, as far as Romania is concerned, the rise in Gross Domestic Product (GDP) is 0.2 percent higher than previous estimates of 6.1 percent by the National Commission for Prognosis (CNP). IMF is more pessimistic regarding 2008, when prices are expected to rise 4.8 percent, exceeding by one percent the forecast of Romania’s central bank (BNR).

To boost economic growth, IMF recommends that Romania promote real estate loans.

“Countries with floating exchange rates (such as Romania) can also raise interest rates as needed to stem inflationary pressures while reigning in pro-cyclical fiscal expansions. Specific fiscal measures aimed at reducing tax and subsidy incentives for real estate borrowing are worth considering,” the report writes.

Moreover, UniCredit analysts estimate that inflation will reach 5.2 percent by the end of the year, one percent higher than the initial prognosis. They forecast that the central bank will lower the key interest rate to 6.5 percent only by the mid-2008 to cut back inflation. The IMF report is slightly more optimistic in this regard, foreseeing a 4.8 percent inflation rate.

Romania’s inflation target is 4 percent for 2007 and 3.8 percent for 2008.

The IMF report also states that countries with high deficits, such as Romania (with a current account deficit estimated at 13.8 percent of GDP in 2007) can be impacted by a rise in external loans and an increase in risk premiums. However, a balanced fiscal policy is likely to narrow negative effects.